ECB's Draghi dismisses Italian threat to 'irreversible' euro

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RIGA (Reuters) - The European Central Bank’s President Mario Draghi on Thursday played down political upheavals in Italy and dismissed suggestions that the euro zone’s third-largest economy might quit the single currency.

President of the European Central Bank Mario Draghi listens during the news conference following the meeting of the Governing Council of the European Central Bank in Riga, Latvia June 14, 2018. REUTERS/Ints Kalnins

The euro and Italian government bonds have been on a roller-coaster ride in recent weeks as Italy went from a political vacuum to a government of anti-establishment parties that some investors feared could push the country out of the single currency.

But Draghi, who is Italian, described the bout of bond volatility as a “a pretty local episode” and gave a robust defence of a euro currency he described as “irreversible”.

“We haven’t seen really any redenomination risk,” Draghi told reporters after a policy meeting at which the ECB decided to wind down its bond-buying programme.

“Contagion was not significant if (there was) any at all,” he added, marking a difference to the widespread market panic of 2011.

Senior members of Italy’s cabinet, backed by a coalition of the rightwing League and the hard-to-define 5-Star Movement, have sought to reassure markets in recent days by reaffirming their commitment to the single currency and playing down pledges to spend more and cut taxes.

According to reports in the Italian media Draghi, regarded as the man who saved the euro during the 2010-12 debt crisis, personally pleaded with a senior League lawmaker for the creation of a government.

“IRREVERSIBLE”

This ended a four-month domestic political impasse and averted early elections that could have turned into a referendum on Italy’s euro membership, with potentially catastrophic consequences for investor faith in the country’s bonds and banks.

“It really doesn’t pay at all to discuss the existence of something that’s irreversible. It can only create damage, and this holds true both ways ... That’s it,” Draghi said.

Rome has called for a discussion of European treaties on government deficits and debt, although this may have become more difficult after it became embroiled in a diplomatic row with France over Italy’s tough new stance on migration.

Draghi said the emergence of new governments with different views should not be dramatised. “We have 19 countries. We are bound to have 19 elections every now and then.”

But differences should be discussed “within the existing treaties”.

“It’s important that these discussions do not destroy the progress that’s been achieved after a lot of sacrifice... with a language that does not destroy (that) progress.”

Reporting by Gederts Gelzis; Writing by Francesco Canepa and John Stonestreet; Editing by Catherine Evans, Hugh Lawson and Gareth Jones